Question:

I recently saw something about a new IRS form that nonprofit organizations are required to fill out, that reports on their annual activities. Is this the same as the Form 990? I run a small nonprofit and want to be sure I am in compliance. Thanks for your help!

Answer:

Yes, it sounds like you are talking about the new IRS Form 990 that nonprofit organizations will file for tax year 2009. As you probably already know, most nonprofit, tax-exempt (or 501(c)(3)) organizations are required to file an informational return annually with the IRS, five months after the close of their fiscal year. Completing and filing the Form 990 is important for two reasons: (1) Form 990 provides the IRS with information about your nonprofit’s activities and financial status in order to demonstrate that your nonprofit still meets the qualifications for tax-exemption, and (2) it informs the public about crucial aspects of your nonprofit, since most of the information is available for public inspection. This allows potential donors to look at an organization’s Form 990 before making decisions about charitable giving.

The new Form 990 is different than the old one in many respects, and asks for significantly different information. The “core form” requests financial data as well as information on your organization’s programs. Form 990 also includes a new section on corporate governance, which asks questions about a nonprofit’s governing body, management policies, and compliance with the tax code. Organizations must also fill out a new section regarding compensation for their officers, directors, key employees, highest compensated employees, and independent contractors.

Being prepared will make it easier for your organization when it comes time to submit the new Form 990. One step you can take to prepare is to review key policies already in place at your nonprofit and discuss whether adopting new policies will be helpful. Some of the policies that the IRS has suggested include the following:

  • Conflict of Interest: It is important to have a policy that addresses conflicts of interest between your organization and those who are in a position to make decisions for it, such as directors or board members. This policy should define what constitutes a conflict, identify those who might potentially be involved, and describe the appropriate steps for resolving any problems.
  • Whistleblower: This policy should ensure that directors, officers and employees of your organization are aware of their responsibility to report violations or suspected violations of applicable laws and regulations. The policy should encourage these individuals to make such reports, and should protect against retaliation for having done so.
  • Document Retention: Your organization should specify what procedures are to be followed with regard to the maintaining and destroying of documents.
  • Compensation: Nonprofit organizations must determine compensation for top-level employees in conjunction with reviews by a governing body (e.g., a Board of Directors), as well as reviews of similarly compensated individuals at other organizations. Deliberation and discussions regarding compensation decisions should be documented.
  • Gifts: You should also address what gifts can and cannot be accepted by your organization, as well as the proper means of dealing with gifts that are offered to your organization and its directors, officers and employees.

You may also wish to consider preparing and distributing questionnaires for your officers, directors, and key employees. These questionnaire should seek out information about the voting independence of these individuals, as well as the family and business relationships among your organization’s officers, board, and key employees. Going through this process can protect your organization, since circulating such questionnaires annually is considered by the IRS to be making a “reasonable effort” to obtain this information. You should also review your nonprofit’s meeting records, in order to ensure that your board is keeping accurate and up to date records and minutes with regard to its key decisions.

Lastly, you should review your nonprofit’s procedures for filing Form 990, as your organization will need to disclose how it approves the Form 990 before sending it to the IRS. You will want to ensure that you have procedures in place providing adequate oversight by your board or other governing body.

More information and instructions, as well as downloadable copies of the new Form 990, go to the IRS’s website at:
http://www.irs.gov/.
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